FPS Towers, recently acquired by American Tower for €697mn (read more earlier in this edition of the journal) exemplify the broader vision of cell site leasing which may be necessary to drive competitive advantage in European towers. In September 2016, FPS announced that they had reached an agreement to lease-up 76,500 towers owned by RTE, a subsidiary of French power producer EDF. This portfolio supplements the 20,000 rooftops FPS markets and FPS’s core portfolio of 2,500 ground based towers.
There are only 24,459 telecom towers yet 62,764 points of presence in France (source: ANFR, 2016). The balance is made up of rooftops, public and transport structures, water towers, church spires. The situation is not unique to France: only 16,532 of Germany’s 70,136 cell sites are ground based towers, and only 42,700 of 117,700 in Russia. Thus, innovative towercos are looking to alternate site typologies beyond ground based towers (GBTs) to deepen their offering to customers.
“FPS Towers is an aggregator of the market: not only towers and rooftops, but a broad typology of assets on which one can mount a mobile antenna,” said Cedric Lepolard, CFO of FPS Towers. “We want to enlarge our offer in order to support their networks.”
“Our strategy is to develop a variety of propositions to meet the needs of the owners of all kinds of assets. We have launched three initial programmes: one focused on public infrastructure, another for building owners, and a third programme focusing on large portfolio owners like RTE and APRR,” continued Cedric Lepolard. “We address the whole of the market through a variety of legal models with always a view to securing a long term hosting proposal for our customers. So it’s an extension of the towerco business model to secure predictable cash flows over 10-20 year periods.”
The recent agreement between FPS Towers and RTE exemplifies this approach. A subsidiary of French power producer EDF, RTE has approximately 380,000 high sites with very good coverage across France. Through a first analysis 76,500 sites in the RTE portfolio are appropriate for radio transmission, with easy access and the potential to be made available by FPS for immediate co-location.
Competitive differentiator
The French tower market developed rationally and with minimal parallel infrastructure.
All players built their own networks one after the others by using existing infrastructure where possible. As a result, relatively few French cell sites are in overlapping locations… until now.
FPS Towers’ deal with RTE enables the towerco to offer ready-to-use sites in attractive locations at a competitive price point they claim compares favorably with other existing solutions or future needs. The 76,500 RTE towers represent twice as many towers as the four French mobile operators and two French towercos (TDF and FPS) combined!
American Tower owned FPS could offer these new sites to accelerate FREE Mobile’s network rollout in rural and exurban areas (around 3,000 sites still need to be deployed), enable all France’s MNOs to meet the new coverage constraints agreed upon during the allocation of 700MHz frequencies, and help accelerate the deployment of IoT networks.
Usage of alternate site typologies in Europe
Applying this approach to other tower markets
MNOs all over the world use any suitable high site when rolling out their networks: it’s faster and often cheaper than building a new site. But such sites are typically owned and managed by a fragmented ecosystem of private and public landlords, not by telecom real estate professionals, so commercial terms and access can be unpredictable.
There is an opportunity for towercos to painstakingly build databases of current and prospective high sites, to design a range of compelling contract models and commercial propositions to meet the needs of these site owners, and to gradually rollup a significant portfolio of alternate cell sites
In France there are over 20,000 high sites owned by third party landlords, there are thousands of water towers with telecom tenants like in the UK and Spain - there are significant quantities of alternate high sites in other tower markets in Europe and beyond. There is an opportunity for towercos to painstakingly build databases of current and prospective high sites, to design a range of compelling contract models and commercial propositions to meet the needs of these site owners, and to gradually rollup a significant portfolio of alternate cell sites.
It’s time for towercos to invest time to make an alternate typology of sites available on a turnkey, responsive, professional basis.
Another example from FPS: highway structures – the APRR deal
FPS Towers also recently secured 300 structures along French highways from APRR in a 20 year agreement which gives FPS the same rights as a site owner.
Even though FPS had to outbid their competitors to secure the deal, it still came at a value significantly less than the premium currently being paid for European GBTs.
Valuing alternate site typologies
Whether a cell site is a ground based tower, a rooftop, a water tower or an electricity pylon, the valuation model is consistent: what is the contractual return, what is the contract term, and what is the prospective growth rate?
However the challenge in valuing alternate site typologies remains the lack of benchmarks. Most transaction benchmarks come from deals to acquire GBTs from MNOs, which typically offer greater structural capacity and greater surety of ground rent costs and access compared to a rooftop. Most transaction benchmarks also come from deals to acquire GBTs in the US, Africa and Asia where there are simply more GBTs in the network as a function of available empty acreage.
The sheer population density in European urban areas – in particular the suburban sprawl spilling into mixed use areas that can utilise every square foot of real estate, means there often isn’t an opportunity to build a GBT.
TowerXchange have not yet completed a pan-Continental study, but we would estimate that 65-75% of European cell sites are alternate site typologies, not GBTs, including the majority of sites in high density urban locations. But if these rooftops and other urban sites can be co-located to a reasonably high tenancy ratio, who cares about typology? Any cash flow counts, even if we have to stop calling it “Tower” Cash Flow!
It seems a ‘tower’ is not always a tower in Europe. And a rooftop may be worth more than a tower. But valuation benchmarks remain few and far between.
